Euro Pound (EUR/GBP) Exchange Rate Continues Slide as ECB Draghi Remains Dovish

June 20, 2018 – Written by John Cameron

ECB President Mario Draghi Reaffirms Dovish Bank Stance – Euro Pound (EUR/GBP) Exchange Rates Tumble

The Euro Pound (EUR/GBP) exchange rate continued its steady fall on Wednesday as investors reacted to dovish statements from European Central Bank (ECB) President Mario Draghi at the banking conference in Sintra, Portugal.

Mr Draghi essentially reaffirmed the ECB’s stance on monetary policy, asserting that the bank must be cautious and patient when determining the trajectory of interest rates – especially given the current uncertainties regarding global trade.

This mirrored the stance revealed at last week’s rate meeting, and seemed to reinforce the expectation that a rate hike wouldn’t be likely until after summer 2019.

In other news, market risk appetite did make a minor recovery on Wednesday, with senior bankers in both the US and China dismissing the possibility of a trade war.

This ultimately failed to provide long-term support for the single currency, however, with investors still waiting to see how the tariff threats will unfold.

Pound (GBP) Exchange Rates UP as Tory Rebels Back Down in Commons Showdown

Sterling (GBP) eventually traded higher on Wednesday, climbing as ministers appeared to successfully fight off a rebellion by Tory MPs.

The would-be rebels were keen to force a showdown on the role that Parliament would have in the event of a no deal Brexit, but figurehead Dominic Grieve soon said that he was backing down after being promised that the Commons Speaker will have the power to decide whether a no-deal motion could be amended by MPs.

This, rather convoluted process essentially eased investor concerns that a bitter division within the Tory party was about to ‘bubble over’, whilst simultaneously maintaining UK Prime Minister Theresa May’s authority.

In the near-term, traders could still step hesitantly around the Pound, with Brexit uncertainty still very much on the radar.

Euro Pound (EUR/GBP) Exchange Rate Forecast: Bank of England Rate Decision LOOMS

Tomorrow will feature the Bank of England’s (BoE) June rate decision, and whilst a rate hike is not expected on this occasion, there is the possibility that the central bank will lay the groundwork for a rate rise in August.

Investors are hopeful that the ongoing strength of the UK’s labour market and recent signs of growth within the manufacturing sector will spur policymakers towards a rate rise, but uncertainty regarding global trade relations and indeed, the nature of Britain’s exit from the EU, could put a damper on expectations.

The next main event for the Euro will likely be Friday’s run of PMI releases, but investors will be keeping a keen eye on trade relations between the US and China in the meantime, with rising risk appetite liable to give the single currency a small shot in the arm.

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TAGS: Euro Pound Forecasts